Cleveland Clinic Health System Obligated Group - FMSbonds.com

Charity Care, Underinsured and Uninsured Patients; Real Estate Tax ExemptionRecently, focus has increased on the provision of charity care by nonprofit health care institutions and theirpricing policies and billing and collection practices involving the underinsured and uninsured. This increased focushas resulted in congressional hearings, governmental inquiries and private, purported class action litigation againstmore than 100 nonprofit health care institutions nationwide, generally alleging the overcharging of underinsured anduninsured patients. Certain of the Obligated Issuers had been served with two similar complaints. Most of thepurported class action cases, including both complaints served against the Obligated Issuers, have been withdrawnor dismissed. Cleveland Clinic management cannot predict the impact that these or related developments may haveon the Obligated Issuers or the health care industry generally.The Attorney General of the State of Ohio has proposed changes to Ohio’s nonprofit corporationregulations. The most recent set of proposals, made in September, 2006, would, if adopted, require that nonprofithospitals register with the office of the Attorney General and make certain filings with the Attorney General. TheAttorney General has also proposed establishing an advisory committee on charitable organizations. It is unclear ifthe proposed regulations will be adopted and, if adopted, what impact they may have on the Obligated Group.Congress is also examining tax-exemption issues surrounding not-for-profit hospitals. SeveralCongressional committees, including the House Ways and Means Subcommittee on Oversight, the House Energyand Commerce Subcommittee on Oversight and the Senate Finance Committee, have held hearings that includetestimony from hospital executives and industry representatives on billing and collection practices for uninsuredpatients. The Chairman of the House Ways and Means Committee also initiated a lengthy series of hearings toconsider issues related to federal tax-exemption for not-for-profit hospitals. These hearings are expected to explorethe uninsured billing and collection controversy, as well as the policy costs and benefits of tax-exemption for notfor-profithospitals.In addition, there has recently been an increased focus on the exemption from real estate property taxesafforded nonprofit healthcare providers. State and local taxing authorities around the country have challengedvarious nonprofit corporations’ real estate property tax exemptions on the grounds that some or all of the activitiesthat these nonprofit corporations are engaged in are not charitable activities. Certain of these challenges haveoccurred in the State of Ohio, and have involved certain facilities of the Cleveland Clinic. There can be noassurance such challenges or any future challenges will not have a material adverse effect on the operations of theObligated Issuers. See APPENDIX A under “PART II. THE OBLIGATED GROUP — K. LIABILITYCONSIDERATIONS AND LITIGATION — Other Litigation.”Bond RatingsThere is no assurance that the ratings assigned to the Series 2008 Bonds at the time of issuance will not belowered or withdrawn at any time, the effect of which could be to adversely affect the market price for andmarketability of such Series 2008 Bonds.Additional Risk FactorsThe following factors, among others, may also adversely affect the operation of health care facilities,including the Obligated Issuers’ facilities, to an extent that cannot be determined at this time:• Increased efforts by insurers and governmental agencies to limit the cost of hospitalservices (including, without limitation, the implementation of a system of prospectivereview of hospital rate changes and negotiating discounted rates), to reduce the number ofhospital beds and to reduce utilization of hospital facilities by such means as preventivemedicine, improved occupational health and safety, clinical integration programs,utilization review, increased competition among health care providers, development andutilization of medical and scientific research and technological advances, and outpatientcare.53